The Cox $1 Billion Copyright Damage Award is Not as Big as You Think

When it was announced last week that a jury awarded the major record labels a one billion-dollar-damage award in its copyright infringement case against COX Communications, certain anti-copyright voices were predictably shrill in their astonishment at such a stratospheric number.  Specifically, the plaintiffs represented by the RIAA were awarded $99,830.29 per infringement of just over 10,000 songs, which is actually less than the maximum statutory damage award of $150,000 per infringement.  

Regardless, the big price tag prompted Mike Masnick at Techdirt to do his shrieking mandrake bit (from Harry Potter), describing statutory damages for copyright infringement as “crazy,” “messed up,” and even “unconstitutional.”  And because comment threads are what they are, one reader at that Ministry of Disinformation opined, “the fact that .50-1.00 dollar [sic] songs magically become worth just under one-hundred thousand each simply highlights just how utterly insane copyright law is.”  

I’m not eager to pick on some anonymous commenter who does not appear to have a rudimentary knowledge of what he’s talking about; but then, many people do think Masnick knows what he’s talking about, which is one reason all this winging nonsense seeps into public perception.  So, let’s review what Cox Communications did in this case; what statutory damages are for; and why the retail price of an individual song (or DVD, or movie ticket, or whatever) has nothing whatsoever to do with damages that may be awarded in a lawsuit.

Cox Was Not Merely Lax in Complying with the DMCA 

The Digital Millennium Copyright Act (1998) provides a liability shield (the “safe harbor”) to internet service providers whose customers use their services to commit copyright infringement—but only if the ISP meets certain conditions.  One of these conditions is that a service provider must have a policy in place whereby repeat infringers eventually face account termination for refusing to cease their infringing activity after receiving warnings sent by the provider. Separately, any party that materially contributes to a form of actionable conduct (including copyright infringement) may be held either civilly or criminally liable for the conduct.

Although the DMCA statute does not mandate how a “repeat infringer policy” must be structured, it was proven in the precedent and related case BMG v. Cox, that the defendant implemented a “thirteen-strike” policy, after which Cox still avoided account termination and was further shown to have taken affirmative action to avoid “knowing” about the scope of infringement claims it was receiving.  For instance as the record labels’ complaint states, “Rather than working with Plaintiffs to curb this massive infringement, Cox unilaterally imposed an arbitrary cap on the number of infringement notices it would accept from copyright holders, thereby willfully blinding itself to any of its subscribers’ infringements that exceeded its ‘cap.’”  [Emphasis added]

In his post, Masnick sweeps the evidence proving Cox’s “willful blindness” under his own invented narrative in which Judge Liam O’Grady of the Virginia Circuit Court simply “does not like the internet,” set in a world in which rightsholders expect ISPs to “wave magic wands to eliminate piracy.”  That’s all very cute and distracting, but what Masnick is really suggesting is that he and others think the liability shield for ISPs should be unconditional; that no internet user should ever have face account termination for any reason; and that statutory damages for contributory copyright infringement—especially to the tune of a billion dollars!—are purely functions of greed on the part of the rightsholders.

Those are opinions that copyright critics are free to express and argue on the merits if they can, but I would remind them and everyone else that it was the ISPs themselves (originally AT&T, Verizon, et al) who proposed the “safe harbor” provisions (Section 512) of the DMCA in the late 1990s; and one of the premises upon which they argued this cause was the fact that they were technologically capable (without the use of magic wands) of substantially mitigating copyright infringement on their platforms.  This promise to use the tools at their disposal to collaborate with rightsholders was part of the deal that earned them the safe harbor in the first place—a bargain that has never actually been fulfilled.  

According to the evidence presented in BMG (which also controls in the subsequent suit by the labels), Cox clearly made executive decisions that went far beyond Masnick’s flabby description that the ISP did “not adequately follow its own repeat infringer policy,” as though the conduct at issue were a mere lapse in maintaining compliance, rather than one of engaging in non-compliance as a matter of company policy.  One email entered into evidence written by the former head of Cox’s Abuse Group stated, “Fuck the DMCA,” which appears to characterize the attitude that caused the ISP to lose so badly in these suits, and also why statutory damages are actually essential when giant players like this are involved. 

A Billion Here a Billion There

Especially where major corporate entities are engaged in any kind of wrongful conduct, it is axiomatic that if damages awarded in litigations are not punitive, the prospect of further legal action can be factored into the cost of doing business and will, therefore, have no effect in correcting the underlying harmful conduct.  Yet, bizarrely, Masnick points to the fact that the RIAA made a little under $10 billion in 2018 as a rationale for describing a damage award one-tenth that size a form of insanity.  This is no less naïve than the aforementioned Techdirt commenter, who seems to have no frame of reference at all for how the law actually works.  Damage awards in a wide range of litigation are not based solely on recouping the “street value” of the estimated financial loss to a plaintiff.  This would never do as a form of justice.

Take this subject out of copyright law for a moment and imagine a man who is maimed as the result of negligence by some corporation.  If he can no longer work as a janitor, should his damage award from a lawsuit be limited to his annual janitor’s salary multiplied by the number of years he can be expected to live?  Though many might prefer such a cold and narrow remedy, it would neither deliver adequate justice to the injured party nor satisfy society’s compelling interest in punishing the corporation for its negligence severely enough that it would incentivize remediation of the harmful conduct.  Damage awards that exceed these parallel aims may be held by a court to be excessive violations of due process (hence Masnick’s allusion to constitutionality); but is the Cox award actually excessive in context?

Cox has about six million subscribers.  If just 20% of those customers are chronic users of pirate sites—this is below statistical piracy averages—that would be roughly one million customers whom Cox could potentially be required to warn and possibly cancel under the provisions of the DMCA.  This subscriber base is worth around two-billion dollars in regular access fees each year,* which gives us a rough idea of the kind of revenue an ISP like Cox may be seeking to protect by engaging in “willful blindness” with regard to its consumers’ scope of infringement.  

So, if we consider that one-billion dollars is one half of one year’s revenue from about one-sixth of Cox’s total customer base, this damage award begins to look like what a damage award is supposed to be—painful enough to effect change in the defendant’s (and related providers’) behavior, but not wildly out of scope with the business dynamics in the circumstance at issue.  Or we can do the math in reverse and even reduce the chronic piracy number to 10% of Cox’s users (i.e. one-billion in revenue per year), and a one-time fine of one-billion dollars is not quite as madly disproportionate as it looks in the headlines.  

Masnick is not wrong to allude to the fact that a damage award can be unconstitutional, but he is wrong to imply that statutory damages are inherently unconstitutional, or immoral, just because he and his friends do not like (or seem to understand) copyright.  People are free to hate the RIAA or Cox or both, but if they’re not willing to unpack any of the pesky details in these cases, then the simple, objective story here is that two different juries concluded, based on evidence, that one big-ass entity willfully harmed the interests of other big-ass entities; and this does tend to result in what looks like big-ass money changing hands.  And there is nothing all that crazy about it.   

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*Average bill of $120-160 times 1 million.

© 2019, David Newhoff. All rights reserved.

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